Saving

Microcredit may have won a Nobel Prize, but evidence is mounting that savings-based programs are more effective tools for providing a pathway out of poverty.

In this week's New America/Politico Live Chat, Jamie M. Zimmerman, New America's deputy director of the Global Assets Project, will be taking questions at Noon ET Tuesday on the role of savings in international development, from the United States to Mexico to Uganda. For background on this issue and some promising pilot programs, please see the video from last week's event, "Savings as a Tool for International Development."

UPDATE: This online discussion has concluded. A complete transcript is available below..

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Past Chats

Previous New America/Politico chats have their full transcripts archived:

As the Program Associate for both the larger Asset Building Program at the New America Foundation, and the Global Assets Project, which is a joint New America-Center for Social Development venture, I sometimes feel like I have a foot in two worlds.

I'll give you an example.  In a widely-circulated column last week, The Next Culture War, the New York Times' David Brooks asserts, in a nutshell, that it's time for a culture shift in America- a shift in the way we think about consumption.  He reviews the thrift-oriented nature of America's past, and laments the materialism that characterizes U.S. society today.  Brooks further highlights the misdirected nature of today's debate around morality and values- one that focuses too much on, say, prayer in school and theories of evolution, rather than taking on the economic values of a society that encourages excessive consumption.

In his Labor day radio address, President Obama announced that beginning in 2010, taxpayers will have the option to purchase a U.S. Savings Bond when filing their federal taxes. The decision to increase access to what is possibly the most secure and low-cost, savings product sends important signals.

The Administration is showing a commitment to promoting economic recovery and household stability through common-sense means and is willing to act on implementation-ready, low-cost, practical, and scale-able proposals. You can find the full text of the White House press release here.

Why this is good news - especially for small savers

Returning the U.S. Savings Bond purchase option to the tax form will make it easier for more than 100 million tax filers to purchase this U.S. security with funds from their federal tax refund when they file their taxes. This maximizes simplicity and minimizes the hassle for the taxpayer who wishes to save a portion of their refund.

The recipients for this year Medal of Freedom have been announced and include Nobel prize winner, Muhammed Yunus. When Yunus (then the chair of the rural economics program at the University of Chittagong) launched the Grameen Bank as a pilot research project in 1976 in a post-war Bangladesh, his motive was to extend credit and foster micro-entrepreneurship amongst the poorest that were largely ignored by the formal Banking sector. Since then, Grameen has become synonymous with micro-credit and has inspired, along with other pioneers such as SEWA and ACCION, many other lenders to mushroom across the world. However, its own evolution as an organization reflects advancements in the microfinance field as a whole, which is increasingly shifting its focus from credit to savings.

The Personal Savings Rate (PSR) once again made headlines recently when the Department of Commerce released the May 2009 figure, which was a whopping 6.9%. For some perspective, April's 2009 rate was only 5.6% and the last time the PSR rate was this high was back in April 1993.

But what does a PSR of 6.9% actually mean?  Are Americans really saving more than they have in over a decade? 

The PSR measures personal savings as total disposable personal income less personal outlays (expenses). A lot happened in the last couple months that has pushed up personal income and pushed down personal outlays, which drove up the PSR.

In this week’s Newsweek, Melinda French Gates—co-chair of the Bill and Melinda Gates Foundation—makes the case for access to saving instruments as an oft-overlooked element of global poverty reduction. Citing the microcredit boom as opening doors for the poor, she cautions:

But loans are not enough. Savings accounts could help people in the developing world weather unexpected events, accumulate money to invest in education, increase their productivity and income, and build their financial security.

The recession has undoubtedly shifted a lot of paradigms lately, and I think all would agree that it's gotten Americans to sit up and take notice-- both individually (challenging their own habits of consumption and saving) and societally (coping with cracks in the safety net system).  The New York Times has taken notice, as well-- two articles in this weekend's Times merit mention.

The first (Shift From Spending to Saving May Be Downturn's Lasting Impact) highlights the re-emergence of a culture of thrift-- and indicates that, unlike past recessions, it's here to stay for a while:

On April 29^th, the Global Assets Project hosted an event to launch its newest policy brief, "Savings-Linked Conditional Cash Transfers: A New Policy Approach to Global Poverty Reduction," at the New America Foundation. By request, we have created a 10 minute Podcast summarizing the paper and key points from the event, for those unable to attend the two-hour event or watch or listen to it in its entirety on our website or YouTube. 

Last month Tim Flacke, Executive Director of the Boston-based nonprofit, Doorways to Dreams (D2D) Fund, and I sat down for a short conversation about the power of an existing but often overlooked savings product: The U.S. Savings Bond.

Click the box below to watch the video, and to learn about the strengths of the product.  Specifically, we discuss why policymakers should consider tweaking the delivery and access mechanisms to make these bonds a more robust resource for all American savers, but especially small, first-time or risk-averse investors.

Signs point to toughening times for the microfinance industry. A recent article from the Economist has echoed my concerns that selling microcredit (as a concept or a product) will grow increasingly difficult as the global economy stumbles (or crashes and burns) on the heels of a debt-led recession in the United States.  Not only in the concept politically less appetizing than it was back when Muhammad Yunus won the Nobel Peace Prize in 2006, the capital fueling the industry is drying up.  The similarities and differences between subprime lending that fueled the US recession and the "sub, sub, subprime" lending happening in developing countries through microfinance institutions have been debated and analyzed for over a year now. But only recently has the engine of seemingly-endless capital to MFIs around the world starting slowing, sputtering to slow chug in some instances.